With Kenya’s stock market expected to pick up in the second half of 2012, analysts at Old Mutual Securities have singled out Kenya Power, Housing Finance and National Bank as some of the favourite stocks for investors.
The three counters at the Nairobi Securities Exchange (NSE) are undervalued as there are trading below their book value—the value of the listed company's total assets less its total liabilities.
The analysts have maintained their buy rating on KCB, Equity bank, BAT and Centum while advising shareholders to hold on to their current shareholding in TPS, Kenol and Uchumi.
With Central Bank having lowered the benchmark lending rate, analysts project that investors will start exiting the bond market in favour of equities raising the possibility that stocks at the NSE will maintain their upward price movements.
The NSE has since January rallied 18 per cent, which according to Bloomberg has placed it as the 3rd best performing stock market in the world, behind the Egyptian and Venezuela bourses.
According to the stockbrokerage firm, Kenya power’s attractiveness stems from the impeding upward review of electricity tariff which will boost revenues as well as its position as a monopoly.
“The company continues to receive a lot of financing from World Bank and the Kenya government which will bring down its cost of capital… (On HFCK)The bank is looking to add revenue from fees and commissions from insuring mortgages,” said the analysts in a research note to investors.
On National bank, the analysts see the entry of a new CEO as a likely boost to the company’s prospects noting he is likely to provide a new direction for the company.
“The bank is coming from a low base, thus it has a lot of upside potential. It’s Price to book ratio places it as the cheapest bank in Kenya “said the analysts.
As regards Uchumi and TPS Serena, the analysts see the stocks as within their fair value, but note that they still face risks .Uchumi’s share price has risen by 105 per cent since January, while TPS’ has shed 20 per cent over the same period.
(On Uchumi) the price has already risen significantly we expect revenue to be strong but costs might be high as well due to the opening of new branches during the year… (On TPS)We expect tourism to see a slight slowdown this year due to fears over insecurity and elections,” the analysts said in a research note to investors.
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